Wednesday, June 26, 2013

Gold Bugs And PR Firms

Futures ripped higher in the overnight session and are digesting those gains in the pre market. Asia didn't fall apart, and the majors in Europe are up solidly. I'm wondering if the Fed is going to pull off another jawboning miracle right before EOQ and the July 4th holiday (early close on July 3rd).

Still thinking the 50-day MA at 1618 makes a great target, and maybe the market does too. El Rey de Espadas (@CrowdBehaviour) mentioned to me that 1618 is also the 61.8% retracement of the 6/24 low measured from the 6/18 high -- how cool is that!

Yesterday was not impressive on several fronts, however. Volume was punk, and it took all day for the 1592.43 gap to get filled. I'm adding to SPXU at 20% increments of my original position as the market heads higher, and thanks to option decay, I've added more VIX puts too.

The next gap higher is 1628.93 -- who knows.

Gold bugs are learning that gold is just another commodity. And while the media rationalize the plunge as "taper fear," they overlook the fact that GLD (gold-backed ETF) must buy gold in rising markets and sell gold in falling markets no matter what. What made GLD the world's largest owner of physical gold on the way up makes it the world's biggest seller on the way down.

Another disruptive influence on the current supply/demand imbalance is John Paulson, who, it seems, has hired a PR firm to put out favorable information about how well he is doing in everybody's other favorite investment: real estate.

Apparently Paulson "has been scoring big gains lately by going long on mortgage insurers" while he "has also told his investors not to pay attention to reports of big losses on the company’s gold holdings because they represent such a small portion of assets under management."

That's right. He very much wants us to know that gold "is only 2% of assets under management."

But as Bloomberg recently reported, because investors can choose between gold- and dollar-denominated versions of most of Paulson’s funds, about 55 percent of the firm’s investors and 85 percent of Paulson’s money are in gold-share classes. This is why I sense that Paulson is paying someone to be crafty with words.

It's also red meat for other traders who might wish to push the market against him. This is why it doesn't pay to tell the world when you're highly concentrated in one position. Keep it to yourself, otherwise you may have Carl Icahn on the other side, as Bill Ackman recently learned.

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